Good news from the depths of the COVID-19 campaign with furniture retailer Nick Scali telling the market that it expects a massive surge in first-half earnings for 2020-21 after a steady result for the year to June.
In the outlook comment with its 2019-20 annual results yesterday, the company told investors to expect a 50% to 60% rise in profits for the first half of the 2021 financial year thanks to an “extremely buoyant” sales period through June and July.
That makes the decision to pay an unchanged final and full-year dividend look cautious given the continuing lockdowns in Melbourne and looming restrained.
But not to investors who pushed the shares up more than 12% yesterday to $8.65.
This follows that steady result, with sales in the 2019-2020 sales dipping 2.1% to $262.5 million and net profit after tax flat at $42.1 million due to the impacts of COVID-19. Same-store sales fell 6.7% in the year which is a better indicator of retail trading performance.
Temporary store closures during Australia’s first lockdown in March and April were estimated to cost the business between $9 and $11 million, however, the surge in housebound Australians prompted a sharp rebound in sales, with orders across May and June rising 72 % on the prior year.
The gross profit margin for FY20 was 62.7%, compared to 62.9% in the prior year. The company said it was able to work closely with suppliers to alleviate the impact of a volatile foreign exchange environment experienced in the period.
During the temporary closure of the Company’s stores in April, the online store was launched across all product categories and achieved more than $3 million in sales orders for the quarter.
The company said the online store positively contributed to earnings before interest and tax in the first quarter of operation.
The directors have declared a fully franked final dividend of 22.5 cents a share, bringing the full-year dividend to 47.5 cents a share and represents a payout ratio of 90% (FY19: 87%).
Looking at the strong start to the new financial year, Nick Scali said that as approximately 65% of its products are made to order with typical delivery lead times of 9-13 weeks, “the recent strong order intake performance means the company’s opening order book for FY21 is significantly higher than in previous years. These orders will be delivered in the first quarter and contribute to revenue in the FY21 financial year.”
“Based on the large increase in written sales orders for the months of May, June, & July, sales revenue growth for the first half of FY21 will increase substantially when compared to the same period last year.,” directors said on Thursday.
“As a result of the strong sales revenue growth and after allowing for 6 weeks of temporary closures in our Melbourne showrooms, the Company expects first-half profit to be up by at least 50-60% when compared to 1H FY20.
“This remains subject to no further extensions of existing restrictions in Melbourne, further store closures across the network as a result of government-imposed lockdowns, or any material delays in the supply chain affecting deliveries,” they cautioned.
